Do I have to close the year? What happens if I don't?

What a year that was never closed does, in numbers

Take a shop that sells 1,000 of goods costing 400 in its first year, and 500 of goods costing 100 in its second. It earned 600 and then 400, and at the end of year two it really has 1,000.

Both profit and loss statements are right: year one reports 600, year two reports 400. The year-two balance sheet, with year one never closed, reports total assets of 400 — and says it balances, because the 600 is missing from the other side too.

There is nothing on that page to suggest it is wrong. It is the most dangerous shape a report can have: confidently incorrect, internally consistent, and about the one number an owner reads to know what their business is worth.

Why the profit and loss is unaffected

A profit and loss covers a PERIOD — it asks what happened between two dates and nothing before them, so it needs no memory of last year. A balance sheet is CUMULATIVE: it asks what the business has, which is everything that has ever happened to it.

That is the whole reason only one of the two breaks. It is also why the problem cannot be noticed by reading the statement you read most often.

What closing actually writes

One entry, dated the year's last day. It sweeps every revenue and expense account to zero and carries the result into your accumulated profit — the same thing an accountant does by hand, in one document you can open and read.

The new year then opens with what the old one closed with. Your customers' balances come across one by one, so the new year knows what each of them owes rather than only that the total is a number — which is what makes a customer's statement still work in January.

What will refuse to close, and each for a real reason

Three things stop a close, and each names itself rather than failing vaguely.

• A month still open An open month is one whose cost of goods sold never reached your books, so closing the year would carry an overstated profit into your capital where nothing later corrects it. Close the months first.
• An earlier year still open The same argument one year up. Years close in order.
• An account that is not mapped The close needs to know where the result goes. It names the account it cannot find rather than locking the year with nothing recognised in it.

There is a preview, and it is the entry itself

Before you press anything you can see exactly what will be written: the result, where it lands, revenue minus expenses, how many accounts will be zeroed, and the journal entry itself behind a disclosure if you want it.

It is not a description of the entry — it is the entry, computed the same way, not yet saved. It writes nothing at all, not even a document number. And if something would refuse the close, the preview says so before the click instead of after it.

Reopening, and where it stops

A closed year can be reopened. That removes the closing entry and lifts the lock, in one movement, so you are not left with a half-closed year.

It stops at one point: once the closing entry has been finalized, reopening is refused. Finalizing is the accounting lock, and the remedy from there is a correcting document in a year that is still open — not quietly undoing a document other people may have relied on.

⚠ What the close does not do

It does not compute your tax. Nothing in the system works out what you owe, and the closing entry carries no provision for it. What you get is a correct set of books for the year, which is what your accountant or your filing needs as an input — and the tax figure comes from them, not from here.

Said plainly because the alternative is somebody assuming the opposite at the one moment of the year when that assumption is most expensive.

When

Close each month as it finishes, and close the year once the last month is closed and you are satisfied with it. There is no deadline the system imposes and no penalty it applies; what there is, is a second year that stays wrong until you do.